Being an Analyst Note issued by Proshare Research on January 31st 2023 

Stakeholders Frown at Nigeria’s Flaring of N9trn of Gas in 10 Years 

Nigeria’s inability to optimize its oil and gas production and revenue have led to some downgrades on investment rating scales, the latest being Moody’s rating downgrade, following the JP Morgan downgrade of Nigeria from the overweight emerging market sovereign recommendation in 2022. Analysts say without a clear oil and gas policy and a firm grip on the industry by the Minister of Petroleum Resources, industry challenges, including dwindling oil production and pricing differential, among others will worsen. 

Unlike Qatar which recorded a budget surplus in 2022 by taking advantage of its huge gas reserve and controlling expenditure, Nigeria recorded a large fiscal 2022 debt of N6.37trn as of November 2022. Qatar has about 896trn cubic feet of gas reserve while Nigeria has about 206trn cubic feet of gas reserve in addition to over 37bn barrels of crude oil reserve. A recent report from the National Oil Spill Detection and Response Agency (NOSDRA) shows that between January and November 2022, Nigeria flared an estimated 5.6bn standard cubic metres (scm) of gas valued at US$685m. Much more worrisome, the country flared 80bn scm of gas worth N9trn in the last decade. Analysts believe Nigeria’s fiscal woes and consumer squeeze is a reflection of the lack of deep thought and deliberateness in administrating Nigeria’s Oil and Gas industry. 

Nigeria’s first 2023 FGN Bond Auction Oversubscribed by +104.5%  

Despite the upward adjustment of the bond offer to N360bn, the primary bond auction had an oversubscription of +104.5% or N736.17bn. The Debt Management Office eventually allotted N662.607bn worth of bonds or 84.1% above the amount offered. Aside from the large liquidity triggering the huge buy interests, analysts believe the negative outlook for 2023 could have propelled investors to seek a safe haven in fixed income instruments. The rates on 2028, 2032, 2037, and 2049 maturities settled at 14.00%, 14.90%, 15.80%, and 15.90% respectively. The buying interests suggest a strong investor’s confidence amidst high inflation expectations and hawkish monetary policy. Analysts expect the buying interest to continue in today’s trading session (see table 1 below). 

Table 1: 

Rising Transportation Costs Cut the Margins of Tomato Merchants

Tomato Merchants in Katsina have decried the rising cost of transporting tomatoes from Katsina to Abia state. As farmers complain about the rising cost of inputs like seeds, fertilizer, and pesticides, merchants complain about the rising cost of baskets, cover paper, transportation, and labour. They claimed to spend about N600,000 in the past year for transportation but now spend N2.2m to move the same set of 350 baskets to the south. The cost of Diesel has almost quadrupled moving up from about N288 in January 2022 to about N800 per litre, and the dangers associated with transporting to the southeast increased as gunmen have issued a sit-at-home order. These factors have made drivers demand an upfront payment of N1.5m to cover fuel and other expenses that could arise as a result of non-state actors while in transit (see chart 1 below).

Chart 1: 

Analysts argue that federal and state governments must come to an agreement on a joint approach to reducing inter-state transport costs and the removal of travel bottlenecks caused by both state and non-state actors collecting tolls. Food inflation in Nigeria was 23% as of December 2022 and could get worse without deliberate government interventions. 

Convergence Partners secures US$296 million to invest in African digital infrastructure.

South African private equity firm, Convergence Partners, has announced the successful closure of its Convergence Partners Digital Infrastructure Fund (CPDIF) at US$296 million, with an oversubscription of 18%. The closure was supported by current and new investors globally, bringing the total aggregate funds under management to over US$600 million. The fund aims to address the infrastructural deficit in sub-Saharan Africa, focusing on sectors such as education, financial services, healthcare, Artificial Intelligence, and the Internet of Things. Analysts note that digital inclusion in sub-Saharan Africa is still a developing issue, and more effort is needed to bridge the digital divide. Digital infrastructure has made significant progress in Nigeria in recent years, but with broadband penetration below 50% as of December 2022, there remains a unique opportunity for initiatives to push for the digitization of the economy. 

Transcorp Subsidiary Increases Power Generation to the National Grid

TransAfam Power Limited, a subsidiary of Transcorp Group, has announced the successful rehabilitation of the Afam 5 GT unit 20 Gas Turbine power-generating unit, adding 138 megawatts (MW) to its power generation capacity. The unit, which had been out of service for 15 years, could power up to 100,000 homes in a year. The achievement is part of a larger effort of the company to expand access to electricity in Nigeria, with the company's power plants already increased from 48MW average generation to 120MW in the first two months. Transcorp, which has a market capitalization of N48.78m and a share price of N1.20, has seen buy interest, posting a YTD gain of 6.19% from N1.13 per share as of Dec 2022. Analysts expect more private sector participation in the energy sector with the likes of Geregu which was recently listed on the local stock exchange, NGX, to participate in driving the power sector (see chart 2 below). 

Chart 2: 

Nigeria Experienced an Internet Shutdown in 2022 which Resulted in a Loss of US$82.7m

In 2021, Nigeria experienced a government-ordered shutdown of Twitter which lasted for 222 days and had a profound impact on the country's economy. According to TOP10VPN, the shutdown resulted in a loss of US$82.7m in Nigeria The new figure indicates a 94% decline in 2021’s value of US$1.45bn. The report stated that the social media shutdown by Nigeria also reduced to 287hrs in 2022 from 5,040 hours in 2021. The Nigerian government extended the nationwide Twitter ban first imposed in June 2021, into January 2022. The ban followed the removal of a tweet by President Muhammadu Buhari on Twitter, as it was in breach of the platform’s rules. Twitter emerged as the most blocked social media platform, suffering 21,650 hours of deliberate disruption, 56% more than Instagram and 64% more than Facebook.

The 222-day-long ban caused the Nigerian economy a total of US$1.54bn over the last two calendar year as many businesses were unable to operate normally, leading to a loss of revenue and potential customers. Entrepreneurs and small business owners, who rely heavily on Twitter to reach customers and grow their businesses, were hit the hardest. Analysts believe that it’s essential for governments to consider the impact of their decisions on the economy and citizens and find a way to balance national security with the protection of civil liberties.